Brian Beutler June 23, 2010, 7:15 PM

In the battle between Scott Brown and Russ Feingold over financial reform, Scott Brown appears to be winning.

Senate staffers tonight are hammering out the shape of the so-called Volcker rule, which would limit insured financial firms’ ability to take speculative bets with their capital, or prohibit it altogether.

Brown for weeks has been seeking a carveout in the legislation—originally authored by Sens. Carl Levin (D-MI) and Jeff Merkley (D-OR)—that would allow banks to invest a portion of their profits in hedge and private equity funds. And as the 60th vote for financial reform, his demands carry a lot of weight. Enter Feingold, who opposed financial reform from the left. After discussions with, and public pressure from, pro-reform groups, Feingold has toyed with the idea of changing his vote from ‘no’ to ‘yes’, becoming the new 60th vote and robbing Brown of his leverage—if the Volcker rule survived loophole free.

Multiple sources tonight say that in all likelihood the hedge fund loophole (known as a ‘de minimis exemption’) will be included in the offer that the conference committee considers this week.

“I think Senator Dodd’s doing a wonderful job,” Brown said tonight. “We’re trying to address everybody’s concerns. Obviously it’s important…for Massachusetts businesses, and businesses throughout the country to continue to operate as they have as many many years.”

I asked whether any of those businesses are getting input into the crafting of the final Volcker rule.

“Of course they do,” he said. “Of course they do.”

Now, it remains unclear what the terms of the exemption will be once the language is drafted. An carveout allowing banks to invest a very small amount of capital, governed by strict trading rules might meet muster with reformers, who generally worry that the loophole could dramatically undermine the entire Volcker rule.

We should know more tomorrow.

Add category, Financial Reform, Russ Feingold, Scott Brown, Volcker, Volcker Rule, Wall Street